Government of India fixes interest rates on these savings plans Every 3 months of the year. The Center will announce the new interest rates for the period July-September 2022 by the end of this month.
According to the data of World Government Bonds, India’s 10 years on Wednesday government agreement Yield is 7.460% up 99.9 bps in 6 months and 11 bps in 1 month. Whereas the 5-year yield is up by 140.4 bps in six months and 12.8 bps in 1 month at 7.269%.
The two-year and three-year G-Sec yields are up 163.3 basis points and 171 basis points in six months at 6.603% and 7.005%. Whereas the jump in one month is around 28.2 points and 14.8 basis points.
The 1-Year Government-Sec Yield has grown by a whopping 207.1 basis points in six months to 6.303%. The yield has increased by 39.1 basis points in one month.
In the short term, the 3-Month and 6-Month G-Sec yields are rising by 146 basis points at 5.090% and 5.770% and 184 basis points in the six-month period.
The interest rate on post office savings account for April 1 to June 30, 2022 is 4%, while for fixed deposits of 1 to 3 years, the interest rate is 5.5% each. The 5-year fixed deposit rate is 6.7%, while the 5-year recurring deposit scheme rate is 5.8%.
The Senior Citizen Savings Scheme has an interest rate of 7.45, while the monthly income account (MIS) interest rate is 6.6% and the National Savings Certificate (NSC) has an interest rate of 6.8%.
The interest rate of Public Provident Fund Scheme is 7.1%, on the other hand, this rate is 6.9% on Kisan Vikas Patra and 7.6% on Sukanya Samriddhi Account Scheme.
There has been no change in interest rates on various small savings schemes for the past eight quarters since the first quarter of FY21, economists at ICRA said in their latest report. The rates for small savings schemes for the second quarter of FY 2023 will be announced at the end of June 2022.
According to economists, the average month-end yields on G-Secs for one-year, two-year and five-year bonds have increased by 138 bps, 93 bps and 79 bps, respectively, between March 2022 and May. 2022, after an increase of 38 bps, 31 bps and 31 bps during December 2021-February 2022 respectively.
Thus, ICRA economists said, “We expect interest rates on small savings schemes to be hiked for Q2 FY2023, given the sharp rise seen in G-Sec yields of various maturities, to which such rates are linked.” Growth rates in small savings can lead to higher inflows into such schemes, thereby limiting the need for additional market borrowings due to the high fiscal deficit.”
In March 2016, in line with the recommendations of the Shyamala Gopinath Committee, to ensure that small savings schemes are market-linked, the Ministry of Finance decided to reset the interest rates of small savings schemes for the next financial year, instead of annually resetting them, from now on. Interest rates were announced. The G-Sec yield of the last three months should be reset every quarter.
The Gopinath Committee had recommended keeping small savings interest rates at 25-100 basis points higher than the average yield of government securities.
Finmin had in 2016 announced additional interest rate spreads on small savings schemes like PPF, Senior Citizens Savings Scheme, Sukanya Samriddhi Yojana, NSC, etc. The additional spread is 25 basis points for PPF, 100 basis points for Senior Citizen Savings Scheme, 75 basis points for Sukanya Samriddhi Yojana, 25 basis points for five-year fixed deposit, and 25 basis points for National Savings Certificate and 25 basis points for monthly income scheme. This additional interest rate spread is being continued.
Government Security (G-Sec) is a tradable instrument issued by the Central and State Governments. The instrument represents the debt obligation of the government. Specifically, these securities are short-term (referred to as Treasury bills, with an original maturity of less than one year) or long-term (such as government bonds or dated securities with an original maturity of one year or more).
In India, the central government issues both treasury bills and bonds or dated securities while state governments issue only bonds or dated securities, called State Development Loans (SDLs). According to RBI’s FAQs, government securities have practically no risk of default and are, therefore, called risk-free gilt-edge instruments.
Another reason for the hike in government-owned small savings schemes could be due to banks increasing their fixed deposit interest rates amid the repo rate hike scenario. To compete with bank FDs and to make post office savings attractive to customers, the government may increase interest rates on these schemes.
In the last two policies, the RBI has increased the policy repo rate by 90 basis points. The first hike was by 40 basis points in May and the second by 50 basis points in the June policy. Now the policy repo rate is 4.90%. There is more room for rate hikes as RBI focuses on tackling multi-year high inflation.